U.K. Shale Boom A Drop in the E.U. Bucket

July 10, 2013 07:03 AM


The shale boom has changed the landscape of American energy production and use. Fracking has allowed for a wealth of fossil resources to be recovered and the resulting low natural gas prices has E.U. nations eyeing energy independence as a means to national security.

Encouraging news out of the U.K. has led to a lot of hype over England's energy future. The British Geological survey reported in June that northern England shale beds may hold up to 1,329 tcf of natural gas. This is encouraging news for some Brits, but the reality of the situation is that England has a long way to go before domestic natgas will have any market impact.

The first hurdle is the same as anyone else stepping into a new production market... infrastructure. It has been estimated that in order to meet consumer demand, the U.K. would only have to capture 10% of the estimated shale gas to cover 50 years of demand. However, based on comparisons to the U.S., U.K. drillers could require up to 300 new wells each year, just to fill 10% of that demand. That would require 25 new well pads each year.

Investors would have to shell out a sack full of cash to get fracking off the ground in the U.K. Here is the second, and potentially higher hurdle of the two... the social impact of proposed fracking.

Among environmentalists, fracking has been demonized as earth watchers believe anything removed or placed beneath the earth's surface constitutes a disruption to the natural order. Fears of increased seismic activity and underground aquifer contamination loom large in the states, and has influenced much of the prevailing attitude in Britain. Experts believe fracking may be a tough sell in the land of the Beatles -- thanks, Yoko.

Meanwhile, such operations would have limited impact on E.U. pricing at large as Russia and Norwegian natgas suppliers currently keep the E.U. well supplied. Add to that imports of LNG and any gas England might coax from the shale would amount to little more than a drop in the bucket.

British natural gas production is not expected to have any impact on wholesale pricing in the European Union. Reliance on current sources offers a more attractive prospect than financing 25 greenfield startup wells in Britain, and without public support for fracking, Britain would be smart to begin their pitch for fracking early and build production capacity incrementally over the next several years.

That would allow time enough for the public to warm up to the practice, and producers would not have to lay out the cash in a lump sum at the front end. Much like the U.S., Britain finds itself atop a sizable fortune in gas reserves, but lacks the infrastructure and the public support to do much more than drill. Based on strong supplies from Russia and other northern E.U. members, and future production out of Ukraine, this time around, Britain may find its efforts best spent educating the public and preparing for a mini-shale boom of their own, not drilling.

But if market fundamentals change, Britain could use the meantime to make ready for the day when frack pumps can run at a social and economic advantage to current supplies.

Photo credit: ~jjjohn~ / Foter / CC BY-NC-ND

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